What We've Learned About Target-Date Funds, 10 Years Later

Patrick R. McDowell, CFP®, AIF® was quoted in a Wall Street Journal article by Jeff Brown discussing target date funds.

Back in 2008, many investors looking ahead to retirement in two years had a shock when “target-date funds” designed for them plummeted in value. Many had assumed those funds, targeted to a 2010 retirement, were safe from large moves that late in the game.

Another concern: The automatic investing strategy ignores changing conditions. Patrick R. McDowell, investment analyst at Arbor Wealth Management in Miramar Beach, Fla., says low bond yields in recent years have reduced TDF income after the target date, and increased the risk of losses on bond holdings if rates rise. (Higher rates hurt bond values because investors favor newer bonds that pay more.)

What’s more, he says, stocks and bonds have often moved in tandem in recent years, reducing the benefit from diversification, which assumes one asset goes up when the other falls.

Retirement savers who are automatically put into TDFs have the right to switch to other funds in their retirement plan as they learn more or conditions change, and Mr. McDowell recommends that investors get more involved as retirement nears. He says he often recommends investors nearing retirement leave the target-date fund and buy a mix of stock and stable-value funds—which contain bonds insured against loss and are designed to preserve capital while generating returns similar to a fixed-income investment—to reduce danger from a potential market plunge.

REITs: Providing Stability in a Volatile World

Patrick R. McDowell, CFP®, AIF® was quoted in a Financial Advisor Magazine article by George Yacik discussing REITs.

With volatility expected to remain elevated in the stock market and the future direction of interest rates a bit cloudy, 2019 might be a good time for financial advisors and their clients to revisit real estate investment trusts, or REITs as they’re more commonly known.

Investors looking to bet on the way interest rates affect the residential mortgage market can invest in mortgage REITs, which earn interest income by originating mortgages and purchasing mortgage-backed securities. Over the past five years, these REITs have had a 9% total annual return and yield about 11.5%, according to Nareit.

“Right now, my firm generally believes taking interest rate risk to get a return is preferable to taking credit risk,” says Patrick McDowell, a fiduciary financial advisor at Arbor Wealth Management in Destin, Fla. “We believe that short-term rates are as likely to go down as up and that long-term rates won’t fall to extremely low levels.”

His pick in this sector is Annaly Capital Management (NLY). “Annaly assumes almost no credit risk, so the main risk they are taking is interest rate risk,” McDowell says. “They essentially are like a bank in that they do better when the spread between short-term and long-term rates widens or stays consistent.”

5 of the Best Dividend Stocks to Buy in March

Patrick R. McDowell, CFP®, AIF® was quoted in a US News & World Report article featured on Washington’s Top News (wtop.com).

So far, 2019 has been very, very good to this Canadian energy company. Insulated from America’s interest rate anxiety and trade tariff squabbling, Enbridge is enjoying a bull run that is so 2013. The stock is up 17 percent, currently trading at $37 U.S. per share.

“We think ENB is still highly undervalued,” says Patrick R. McDowell, an investment analyst with Arbor Wealth Management, Miramar Beach, Florida. “It is also our largest holding.”

The current dividend yield sits above 6 percent “and after a few more years of dividend hikes Enbridge will be considered a dividend aristocrat,” McDowell says. Since 2011, quarterly payouts have nearly tripled to 73.8 cents per share — yet another sign of solid performance in a sector that’s had the crude kicked out it for years.

One advantage Enbridge has centers on its business model. It operates Canada’s largest natural gas distribution network as well as the longest crude oil and hydrocarbon transport system in North America.

Says McDowell: “We like the toll-booth nature of the business and think the dividend will grow around 10 percent per annum for the foreseeable future.”

The 8 Best 401(k) Funds for Millennials

Patrick R. McDowell, CFP®, AIF® was quoted in a US News & World Report article featured in Yahoo! Finance by Rebecca Lake.

Patrick R. McDowell, research analyst and portfolio manager at Arbor Wealth Management in Florida, says DSEEX isn't necessarily the easiest investment to understand, but "it's the best mutual fund a young person with a 10-plus year time horizon could own in a 401(k) account." The fund's objective is a total return exceeding the Shiller Barclays CAPE US Sector USD Index. McDowell says DSEEX rebalances sectors of the market, based on what's cheapest using the CAPE ratio, which represents a cyclically adjusted price-to-earnings ratio. The fund has delivered a 13.71 percent annualized return since its inception in October 2013 and McDowell says there's a strong likelihood it will continue to outperform the S&P 500.

Pros and Cons to Buying Fiat Chrysler Stock

Patrick R. McDowell, CFP®, AIF® was quoted in a US News & World Report article by Brian O’Connell discussing the pros and cons to buying Fiat Chrysler stock.

Stock buyers increasingly see value and opportunity with FCAU, as the automaker is viewed as a positive outlier in a mediocre auto sales climate.

“We recently got long FCAU and made it one of our larger positions,” says Patrick McDowell, portfolio manager at Arbor Wealth Management in Destin, Florida.

McDowell points to several factors that have him bullish on the stock.

It's a good value. The company is cheap on just about any metric for a profitable going concern. “Auto investors appear to be pricing in 2008-level auto sales on a go-forward basis,” McDowell says. “Fiat Chrysler thinks they can be profitable even in that scenario.”

The company has plenty of cash. Fiat Chrysler has quite a bit of cash on the balance sheet and that cash balance will grow with the Magneti Marelli sale (to KKR’s Calsonic Kansei, in October), McDowell points out. “That should mean FCAU ends the year with around 40 percent of the market cap in cash,” he says.

Another merger could be near. McDowell believes the entire company is ripe for a merger or acquisition in the near future. “We think the auto parts and potentially the robotics arm Comau businesses being sold are a prelude to a full-fledged sale or merger of the company with a rival,” he says. “In order to fetch a better price in a potential sale, we think a tender/buyback or a stronger dividend is in the cards in the near future.”